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Buying a home - worst case scenario - what to do?

by Elizabeth
(Utica. NY)

Hi Help please!

I am a first time home buyer, buying a home with my fiance'. He is selling his home currently on the market for $125K with no contingencies. He owes 20K on his current mortgage. We have 15K cash in the bank to use however on the purchase of a home. The both of us take in 45K per year each (90K). We are approved for a 200K loan through our bank. My credit score is higher 689, his is lower 589. My debt to income ratio is higher; his is lower. The only debt I have is 20K in Student Loans (currently deferred), and 25K car loan (plus small balances on 2 credit cards). He has 20K mortgage and 20K car loan plus 1 bad debt.

Our recent offer on a home we loved was accepted for 169K. We put down a deposit of 1K.

NOW we are in conversation with our mortgage broker and she says best case scenario we sell our home within the next few weeks, put down 20% on the new home and lock in 15 year mortgage w/.366% APR.

WORST CASE--> there are many different scenarios here that I am finding out minute by minute....this is the part I have questions on.

1. If we don't sell house: put down 10K as down payment, finance a mortgage for 30 years at 3.6%, pull our home off the market and rent it out??.

2. Take our a home equity loan to pay for the 20% down payment.

3. Have my fiance' "purchase" my truck to move the loan into his name, off my credit which would bring my debt to income ratio down.

I need some guidance here....what can we do??? Thanks so much. Backing out of the deal is not an option.

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Buying a home - Worst case scenario - What to do?
by: Jeffrey

Hello Elizabeth,

Thanks for visiting my site and asking your questions. I also commend you for giving me plenty of details. Please see my answers below your questions:

1. If we don't sell house: put down 10K as down payment, finance a mortgage for 30 years at 3.6%, pull our home off the market and rent it out??.

ANSWER: This may be a good option, however, your debt to income ratios might be affected. In most cases, you cannot count the rental income (which would of course lower your DTI) because you have no rental history showing income. Each lender looks at this a little differently, so ask questions.

2. Take our a home equity loan to pay for the 20% down payment.

ANSWER: This is not a good idea, since it would increase your debt to income ratio. Besides the fact, lenders really don't want to see you borrow a down payment.

3. Have my fiance' "purchase" my truck to move the loan into his name, off my credit which would bring my debt to income ratio down.

ANSWER: This is not a great idea either, because getting a car loan while in the mortgage application process affects credit scores and debt to income ratios.

I need some guidance here....what can we do???

ANSWER: From what I see of your situation (which by the way, there is no possible way for me to see the whole picture) you're probably best to go with option number 1. As long as the two of you can qualify with both mortgages, buying the new home with minimal down payment on a 30 year loan is not a bad option. You can always make extra principal payments, and even consider re-financing it once you sell his home. You could then take a large portion from the sale, pay it down on your balance and refinance the new home on a 15 year mortgage.

I wish you the best in your home purchase. Please tell others about my website if you find this helpful.

Thanks,
Jeff

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